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CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

Sunrise Textiles Ltd's management prepared its financial statements and also chose the accounting policies applied. The auditor, CA Meera, is planning her work. Which statement correctly describes the respective responsibilities under the Standards on Auditing?

Management prepares the financial statements, selects accounting policies and maintains internal control, whereas the auditor's responsibility is limited to forming and expressing an opinion on whether the statements give a true and fair view. Audit does not transfer preparation responsibility to the auditor.

  1. AManagement is responsible for preparing the financial statements; the auditor is responsible for expressing an opinion on themCorrect
  2. BThe auditor is responsible for preparing the financial statements; management only expresses an opinion on them
  3. CThe auditor is responsible for selecting the accounting policies and for preventing fraud in the company
  4. DManagement and the auditor share equal responsibility for preparing the financial statements

Explanation

Under SA 200, management and those charged with governance prepare the financial statements and maintain internal control, while the auditor forms and expresses an opinion on them. The auditor's involvement does not shift preparation or the duty to prevent fraud to the auditor, so the other options reverse or blur the roles.

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